Colin Stewart, CEO & Portfolio Manager, JC Clark Limited

FOCUS: North American Large Caps and Long/Short Strategies

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MARKET OUTLOOK:

In recent months, we have become increasingly cautious with respect to the macro-economic backdrop and the outlook for equity markets. Leading economic indicators around the globe have begun to weaken suggesting the current low growth environment is possibly poised to deteriorate. U.S. economic growth remains modest with weak capital expenditures, declining corporate profit margins, and some recent signs of softness in the labour market. Equity valuation multiples remain above historic averages, particularly in the U.S. Geopolitical risks have also increased. The recent decision by the U.K. to leave the European Union was a surprise to markets and is sure to create a prolonged period of uncertainty for European businesses as they look for clarity surrounding trade, movement of labour, and taxation. The upcoming U.S. election is likely to stimulate added populist rhetoric in the U.S. and create increasing levels of uncertainty for domestic businesses.  The myriad of aforementioned issues argues for a more defensive investment approach. 

Top Picks:

Maple Leaf Foods (MFI.TO)

• Most recent purchase in late July at approximately $29.50/sh.
• Dominant Canadian food processing and branded protein products company
• Huge plant modernization program has led to increased margins and significant free cash flow generation
• Weak Canadian dollar provides competitive advantages vs. imported products
• Strong balance sheet creates opportunities to deploy capital through acquisitions, dividends, and share repurchases
• Valuation discount to U.S. packaged food companies such as Hormel and Conagra

Service Corporation International (SCI.N)

• Recent purchase approx. 1 week ago around $27/sh.
• Leading North American operator of Funeral & Cemetery services
• Changing demographics will create natural growth in demand as the population ages
• Consolidator in a highly fragmented industry
• Strong free cash flow generation
• Excellent management team

Capital Senior Living (CSU.N)

• Most recent purchase last week around current prices
• U.S. owner/operator of seniors living facilities, benefit from ageing population
• Own 65 per cent of real estate, almost all private pay facilities
• Consistent growth in occupancy (now at 89 per cent) and gradual increases in average monthly rent
• Strong growth in cash flow per share
• Trades at significant discount to Canadian Seniors REITS and U.S. healthcare REITS

Past Picks:  September 3, 2015

Cargojet (CJT.TO)

• Then: $21.39
• Now: $38.12
• Return: +78.21%
• TR: +82.42%

Pollard Banknote (PBL.TO)

• Then: $6.85
• Now: $7.50
• Return: +9.49%
• TR: +11.25%

Apple (AAPL.O)

• Then: $110.37
• Now: $108.69
• Return: -1.52%
• TR: 0.58%

Total Return Average: +31.42%

Fund Profile

JC Clark Preservation Trust

Performance as of July 31, 2016

* Index: S&P 500/S&P TSX

* Identify if your fund’s returns are based on reinvested dividends. Returns provided must be net of fees!

Website: www.jcclark.com